FOREX-Dollar flat vs major rivals as focus turns to Fed minutes

* Fed minutes on Wednesday to shed light on U.S. tapering
plans
* Dollar index stays above recent near two-month low
* Analysts caution dollar weakness should minutes sound
dovish
By Wanfeng Zhou
NEW YORK, Aug 19 The dollar traded little
changed against major currencies on Monday with investors
shifting focus to the release of Federal Reserve meeting minutes
later this week which could offer clues on whether the U.S.
central bank will cut back on its monetary stimulus next month.
Analysts said the minutes from its July 30-31 meeting, which
the Fed publishes on Wednesday, could stoke expectations that
the Fed will start reducing its $85-billion per month bond
purchase program. Such a move could further boost U.S. Treasury
yields, enhancing the attractiveness of dollar-denominated
assets.
"It could just reinforce the view that the Fed is prepared
to begin tapering sooner rather than later," said Eric Viloria,
currency strategist at Forex.com in New York.
"If the Fed does start to taper and other central banks
remain accommodative and may even pursue more easing, that is
going to be a positive for the U.S. dollar," he said.
Uncertainty about the U.S. monetary policy outlook has
pressured the dollar in recent weeks, driving it to a near
two-month low.
The dollar index was little changed on Monday, at
81.253, still above a low of 80.868 plumbed on Aug. 8.
Expectations of a scaling back of Fed stimulus have driven
U.S. benchmark yields to two-year highs. Higher yields
make dollar-denominated assets attractive, but the impact on the
currency has been blunted by the improving euro zone and UK
economies, which have underpinned the euro and sterling.
Some strategists cautioned that if the Fed minutes sounded
dovish or failed to provide clues on its tapering plans, the
dollar could falter.
"The consensus is for the tapering process to begin next
month. But if the minutes don't give any strong hints of that,
there is a risk expectations start to drift from September to
October," said Adam Cole, global head of FX strategy at RBC
Capital Markets.
"This gives the dollar a slight negative bias, although it
is not an aggressive call."
The euro rose 0.1 percent to $1.3344, within sight of
the $1.3400 level it touched on Aug. 8, which was its highest
since June 19, according to Reuters data.
Analysts said euro zone manufacturing and services activity
data due on Thursday could help the euro.
The latest data from the Commodity Futures Trading
Commission showed that currency speculators were bullish on the
euro for the second straight week which ended on Aug. 13.
Against the yen, the dollar edged up 0.4 percent to
97.96 yen. Chartists said if the dollar breaks above the Aug. 15
peak of 98.64 yen, it could retest the August high of 99.94 yen.
While U.S Treasury yields have risen more than 10 basis
points from last Friday's low to Monday's high, Japan government
bond (JGB) yields have inched up by only around 2.0
basis points.
As a result, the U.S.-Japan bond spread "continues to widen
in favor of dollar/yen upside," strategists at UBS said.
"We look for more spread widening over the months ahead as
the Fed begins the process of QE3 tapering while the Bank of
Japan continues to lean heavily on the JGB curve." QE3 refers to
the Fed's third round of quantitative easing, an $85
billion-per-month bond purchase program.